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Category: Economics

A silly little piece appeared in The New York Times discussing a hypothesis of a Harvard economics professor that Apple might slow down its operating system ahead of major product releases in an attempt to encourage consumers to upgrade.

It is shown that the spikes in searches for slow operation of Apple’s products seem to correlate with new iPhone release dates, whereas there are no search spikes in the data for the Samsung Galaxy.

These graphs are horribly misleading on their own. Both products have grown in popularity over the years, so the increase in search volume over time reflects nothing more than their widespread mainstream popularity. This could have easily been removed from the graphs by adjusting these trendlines relative to the “base” searches, e.g. “iPhone” and “Samsung Galaxy”. In the graphs as shown, it’s hard to tell whether little spikes are actually hidden within the compressed and precise trendline for the Samsung Galaxy.

A book review by Thomas Frank, on a biography of John Kenneth Galbraith.

What astonishes the contemporary reader is, first of all, that a genuine, independent intellectual like Galbraith was permitted to serve in government, let alone become the confidant of presidents. Facile anti-intellectualism is the order of the day now, as even Democrats race to embrace the free-market logic of the Chicagoans. The ”New Industrial State” that the great liberal economist described in 1967 is now Public Enemy No. 1 of financiers and rebel C.E.O.’s determined to, as Tom Peters put it in 1992, blast ”the violent winds of the marketplace into every nook and cranny in the firm.”

Yet reading Parker’s comprehensive account of the 20th century’s economic battles, I can’t help thinking that this ought to be Galbraith’s moment. An old-school scoffer like Galbraith would remind us that all our elected officials have done with their heady incantations of the virtues of privatizing Social Security and the glories of deregulation is resurrect the superstitions of our orthodox ancestors, and trade in our affluent society for a faith-based 19th-century model in which the affluence accrues only to the top.

Or, as I sometimes like to put it, “Economics is too important to be left to economists.” Galbraith would have agreed.

Seemed particularly relevant to me as I have just finished reading books by Galbraith and Frank in the last few months.

“And without a normative justification for the State, whether it be in the form of democratic government or a horrific tyrant, taxes can’t be justified (philosophically).”

I responded with the below message:

The most moving argument from the state can be stated in economists’ terms. It is sometimes called “the public goods” justification. Goes something like this (paraphrased from Wikipedia):

A market may allow individuals to create and allocate many goods optimally. But there are some goods — “public goods” — that are not produced adequately in a market system. These collective goods are ones that all individuals want (hypothetically — this is often a normative judgment, but comes from very basic things we consider to be “human rights”) but for whose production it is often not individually rational for people to secure a collectively rational outcome. The state can step in and force us all to contribute toward the production of these goods, and we can all thereby be made better off.

For example, it is true that if we had only private schools, people with a lot of money could ensure the best education for their children without having to pay for both the private school and the taxes necessary to fund the public school. But poor parents will have no choice but to send their children to less well-maintained and more poorly-staffed schools.

Supposedly, for society to progress we would prefer if all members of society had access to good schooling, regardless of the social class into which they were born. (That is, whether my parent is a millionaire investor or a plumber, I should have access to a good education.) Therefore, it makes some sense for us to pay a tax to the state, and for the state to provide good (and equal) schooling for everyone. What’s more, because the state needn’t turn a profit on schools, their overall cost through taxation can be lower than private schools would be.

Schools are one of those things you would prefer not be left to the market, because supposedly it’s good for everyone that everyone else is educated above a certain level. These people, after all, will become your neighbors, employers, employees, clients, etc. They also will be voting in elections.

In other words, if you value a high level of education as a universal right which should be secured for all citizens regardless of the socioeconomic class they are born into, then you are essentially already arguing for the state, because the market, per se, will not secure a high quality education for every individual.

Similar arguments can be made about health care, large pieces of infrastructure (like highways, roads, traffic lights), and certain components of institutional security (like firefighters, police officers, etc.). The state shouldn’t do everything — it should only make the level of quality equal across a market for certain goods, due to moral concerns we have. People shouldn’t have access to worse roads, or worse health care, or less firefighter or police protection, just because they live in a town of poor people.

We are okay with poorer people having less access to shiny new BMWs, bottled water, and Starbucks coffee, because these are frivolous private expenditures anyway. The poor person who drinks less Starbucks coffee than me won’t grow up to be an ignorant, sick, armed and desperate person ready to murder me on the street for the $40 in my pocket. But the uneducated person, without access to healthcare and who lives in a violent neighborhood with no police officers will certainly slay me for the $40 in my pocket.

I recently found myself digging through a trash can. Why? Well, in it was a discarded Forbes Magazine, with an article visible with the same title as this post. It was written by Steven Landsburg, a professor of Economics at University of Rochester, who is, to put it lightly, criminally insane.

The ideas put forth in this article are quite strange, in the worst kind of way. You can read the entire thing at Forbes.com. His basic premise? That encouraging companies to hire American workers over foreign ones is racism. He points out that our government ranks…

…are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant-and it is-then so is xenophobia, and for exactly the same reasons.

Apparently Landsburg is received his PhD from University of Chicago in 1979. So, the first question I asked myself was, “Is Landsburg a member of the Chicago School of Economics?” and some quick Googling reviewing his books made it clear that he is. Well, this already answered many of my questions.

For those out of the know, the Chicago school embodies what is known as Neoclassical Economic Theory, in which the idea of a laissez-faire economy is placed in the highest regard. The Chicago school’s theories were based on ultra-mathematical economic modelling and a general rejection of Keynesian economic ideas which took hold in public policies around the world and are still seen as the major reason we haven’t seen another major global recession since the Great Depression. However, economists like Landsburg reject these ideas, opting instead for a neoliberal, neoclassical economic order in which globalization reigns supreme and government power to protect its citizens is quite reduced.

That latter article in particular will let you know what I meant by calling Landsburg “criminally insane.”

Interestingly enough, Landsburg’s viewpoint on protectionism is so patently false, that I even found myself agreeing with Pat Buchanan, of all people, who wrote a stunningly potent and elegant paragraph pointing out the major fallacy in Landsburg’s interpretation of “racism” and “xenophobia”:

To be more concerned about the well-being of one’s fellow Americans is not “xenophobia,” which means a fear or hatred or foreigners. It is patriotism, which entails a special love for one’s own country and countrymen, not a hatred of any other country or people. Preferring Americans no more means hating other peoples than preferring one’s family means hating all other families. An icy indifference as to whether one’s countrymen are winning—be it in a competition for jobs or Olympic medals—is moral treason and the mark of a dead soul.

Why do I think Landsburg’s view is so deranged? Because it fails to see the world for what it is: a whole bunch of groups of people trying to work together to better their collective lot in life. The reason a South American worker shouldn’t have an equal shot at an American employer’s jobs is that South America needs to have its own sustainable businesses. If we allow corporations to hop around the globe, picking the cheapest labor markets with the best political advantages, then we will never see progress. A factory built in South America is worth nothing if it is torn down 5 years later when that factory owner moves shop to China. What did the South American workers gain? Skills, you say? Nope, not if the jobs involve unskilled labor, as in 99% of these cases. Money? Sure, but I guarantee you the little pay they received doesn’t give them enough money to become a real estate developer, as the President of Nike once hilariously suggested. Chances are most of it was spent on making ends meet. But who did gain? Well, the American corporation gained. Its shareholders gained. On the short term, the American consumer gains (though even he will be a victim of globalization’s corporate capital fluidity in the end).

Landsburg writes, “if it’s okay to enrich ourselves by denying foreigners the right to earn a living, why not enrich ourselves by invading peaceful countries and seizing their assets?” Here you can see the major philosophical reason Landsburg’s piece doesn’t hold up. He says protectionism is “denying foreigners the right to earn a living,” but I don’t believe that’s what protectionism is at all.

It is not as if American corporations go to places like Mexico because they are attracted to the skills of the laborers. They go there because it’s cheaper, and let’s not forget that. They go there because the Mexican government won’t restrict them as much when it comes to things like pollution, workers’ rights, and, perhaps most importantly, minimum wage. These are all economic costs of being a business in the United States. But the reason these limitations on business were instituted was because the government is supposed to protect a person’s basic human rights before considering a corporation’s rights. It’s true that from an economic point of view, it would be very efficient and profitable for me to find 10 unemployed Mexican immigrants and let them to work for me for $0.10 a day in unairconditioned rooms, with quotas of 400 units per worker per day, making some product I can sell for a huge profit. But there’s a minor problem: it’s not legal for me to do so. If you think the fact that it would benefit the consumers of my product (in terms of the low price I can sell it for) is worth more than protecting the human rights of those 10 Mexicans I hired, then maybe you can start talking to me about globalization, since that’s just what corporations do if they move to Mexico and open a factory with poor worker conditions and wages that one can barely even live off. If you fail to see that moral connection, you’re failing to see a lot.

So there are really only two choices if you think globalization is inevitable: bring third world country’s laws onto the same level as ours (in terms of minimum wage, pollution, etc.) in which case there truthfully won’t be much of a compelling interest for corporations to move to those countries anyway, or strip away laws that protect laborers across the globe so that even in the United States, laws like minimum wage no longer exist.

Landsburg clearly believes in this second vision of globalization, the one that one can easily label “the race to the bottom.” In this global order, corporations hop around the globe finding the cheapest labor markets and best consumer markets, in a big cycle where the only group that continually prospers is the rich shareholders.

I believe in the third option: reject the vision of globalization entirely. Focus on the local, and in countries where local conditions are desperate, focus energies on political programs which allow laborers to band together to form their own local markets and local economies. Open schools and libraries, not factories. Stop performing economic terrorism on places like Jamaica, where we destroy local markets by forcing our (often lower-quality, but cheaper) exported goods upon them. Track down corporations that run sweatshop factories across the globe and punish them as if those sweatshop factories were in the USA, forcing them to figure out how to profit using humane labor. Encourage trade, but only on fair terms.

Came across a website called Project Outsourced the other day. A group of documentary filmmakers are attempting to cover outsourcing from every angle. Interesting clip on the front page relating to Lou Dobbs, although almost everyone in that clip (including an NYU Economics professor) is so unbelievably wrong about Lou Dobbs that it hurts me to hear supposedly intelligently people speaking such garbage…